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Tax planning tips for businesses

We recently sent our business clients information about our popular tax planning service. Click here for the details. If our tax planning service interests you, please contact us now as time is running out.

To assist you further we’ve outlined various strategies to minimise your tax:

Consider the timing of income

If possible and if it will not affect the business’ cash flow, you may want to consider deferring any assessable income until after the end of the current financial year (30 June 2017).

It is important to note that income is considered earned when payment has been received (cash basis), or the service/product is already provided and you have a right to be paid for those goods or services (accruals basis). Also, merely delaying the banking of amounts already received until after 30 June 2017 is not adequate if you are seeking to defer income recognition until the next financial year.

Review prepaid expenses

Small business entities should look to whether they have incurred certain expenditure that could be prepaid before 30 June 2017. A tax deduction for the full amount can generally be claimed in the current year for some expenses such as memberships or subscriptions, insurance premiums, advertising, rent and interest. A deduction is allowed only if the payment is made for a service that is to be rendered within a 12-month period and if it is paid prior to 30 June 2017.

Other rules apply to investors and individuals who are not carrying on a business. It is best to contact your MP+ accountant if you are looking to make any prepayments.      

Write off bad debts

Make sure to write off any bad debts (uncollectable money owed to you) before 30 June 2017 as this can generally be claimed as a tax deduction. Note that a deduction will only be allowed if the debt was previously reported as assessable income and you document the writing off before 30 June 2017.

Valuing your trading stock

Every single item of trading stock may be valued for tax purposes. There are various valuation methods – cost, market selling value or replacement value. You can choose to apply a different method for single items. Income may be brought forward or deferred, depending on the method you use. Therefore, a review of your stock may be appropriate particularly if you are carrying items that have become obsolete as a tax deduction may arise if a lower valuation method is applied.

Review depreciating assets

Taxpayers (whether a business, investor or employee) can claim a deduction for depreciating assets that are used to produce assessable income. Now is a good time to review asset schedules to see if you are able to scrap (write-off) obsolete items of plant.

In addition, small businesses (turnover of less than $2 million) have a final opportunity to take advantage of the instant asset write-off scheme that allows them to immediately write off the full cost of depreciating assets costing less than $20,000 each.  Note, this concession ends on 30 June 2017 so time is running out to benefit from the measure.

Staff bonuses

Are you thinking about rewarding your hard-working employees with a bonus? If so, it may be possible to claim a deduction for those bonuses even though they may not be paid until after the 30 June 2017. This requires careful planning including formal authorisation (e.g. passing an appropriate resolution) and the payment/s must be unconditional by 30 June. Please contact your MP+ accountant for assistance in this area.

Make Superannuation Guarantee Contributions (SGC) before 30 June

The deadline for employers to meet their SGC obligations is not until 28 July 2017. However, if you want to claim a tax deduction in the current financial year (2016/17), the SGC payment must be made and received into the super fund’s bank account by 30 June 2017.

This means that even where the amounts are paid by electronic funds transfer, a deduction will be denied in this financial year if the payment is not credited to the fund’s bank account until after 30 June 2017. A reminder to make payments allowing plenty of time for bank processing, particularly as 30 June falls on a Friday this year.

Timing of Capital Gains Income

It may be beneficial to defer a capital gain on the sale of an investment to a later income year for a number of reasons – income is expected to be less; perhaps a lower company tax rate may apply; or you expect to realise capital losses from the sale of another investment/s; or the delay may help your business qualify for a number of CGT concessions. Alternatively, it may be useful to bring forward a sale to the current year if there are already realised capital losses available to reduce a gain or income levels are relatively low in this financial year.

A reminder that for CGT purposes, the timing of the gain is generally the date of the sale contract, not the settlement date or the day you receive the money.

These issues can be complicated, so please make sure you discuss them with your MP+ accountant before committing to any sale of investments.

As you will note, there are plenty of opportunities to save tax. To find out more about our tax planning service, click here or give us a call on 9301 2200.

written by:

McKinley Plowman